Answer: Santa is, of course, not real. Knowing when to tell children that he does not exist as an actual person who has special powers is one of the most common problems parents have to face. Questions such as who (the parents, school, friends, etc.) should tell your child about Santa or at what age kids should be told the truth often come up.
Deciding what to do can be tough, especially when adults are constantly pressured by the world to just "go along" with the Santa Claus myth and pretend he exists. Some have the additional problem of deciding how to convey to their children that the family, out of conscience, does not participate in Christmas.
This modern world has at its disposal an impressive array of techniques and methods in which to promote deception, especially among impressionable children. It can effectively promote how "real" Kris Kringle is and how "good" it is to participate in the trappings of Christmas. The pressure to conform can come from the media, entertainment (movies, games, etc.), family, friends and church to name a few.
The right time
When my friend's child was young, he and his wife had to deal with the problem of when to inform their little ones about the existence of Santa Claus. They found that children learn more by example than by words.
Years ago, while they walked in the shopping malls before Christmas, their family would invariably see several versions of Santa along the way. Since they did not celebrate Xmas, they would simply walk past anyone dressed as him without making any comments. One year a woman asked their five year old what Kris Kringle brought him for the holiday. He simply replied, "We don't keep Christmas."
If children are about five years old or less (e.g. before they start school) they will not understand explanations for not keeping Christmas, such as its obvious non-Christian origins that pre-date the birth of Jesus. They will not be able to grasp why Santa does not exist no matter how it is explained to them.
Young children and Santa
My advice for handling children that are young is to avoid bringing up the subject. If you do not keep Christmas out of conscience toward God, you would do well to keep up the practice.
For children who are of school age, the problem of trying to explain why a make believe person (e.g. Santa) does not exist is not as hard as it once was.
Kids are growing up today in a world that is profoundly different from what it was even in the late 20th century. Children as young as three are learning to use a computer or a smartphone in order to take advantage of their teaching ability. They can learn the truth about Santa from a variety of sources.
What does all this mean concerning telling your kids the truth about Santa instead of lying to them that he is real? Children, even at an early age, are exposed to a whole host of characters that look, speak and act just like humans but are creations of someone's imagination.
Whether in Internet games, educational software used in schools, cartoons, movies, even in story or coloring books, kids of school age are usually very familiar with interacting with countless fictional (pretend) people.
Explain to your children that Santa is not real just like their favorite Disney character (Cinderella, Tinkerbell, etc.), or cartoon character. Tell them he is a make-believe individual created by some humans for the enjoyment of others like themselves. Assure them that seeing someone dressed up like him in a store does not mean he is literally alive.